CalPERS Suffers Standing Setback In Spiking Suit

Last Friday, Sacramento Superior Court Judge Michael P. Kenny ruled on demurrers to a petition for a writ of mandamus filed against the Board of Administration of the California Public Employees Retirement System, California Prison Healthcare Receivership Corporation, Judicial Council of California-Administrative Ofice of the Courts, and J. Clark Kelso.  I wrote about this case a year ago when Judge Allen Sumner was set to rule on a demurrer to the original petition.  As a result of Judge Sumner’s ruling, the petitioner amended his petition and served Mr. Kelso, the Judicial Council of California – Administrative Office of the Courts, and the California Prison Healthcare Receivership.

In 2008, the federal court appointed Mr. Kelso as receiver for California’s prison health care system.  The First Amended Petition alleges three causes of action.  Judge Kenny characterized the petition and complaint as follows:

[T]he petition and complaint alleges, in essence, that Kelso, who previously had been a state employee eligible for CalPERS membership, left state employment to accept a position as the federally-appointed Receiver for the prison health care system, in which he no longer, as a matter of fact, was a state employee.  It is further alleged that, notwithstanding the fact that Kelso was no longer a state employee, he entered into an agreement with real party in interest AOC [Administrative Office of the Courts], the sole purpose of which was to create the appearance of state employment, without the reality of such employment, in order to permit Kelso to qualify for CalPERS membership while serving as the federal Receiver.

. . . As a result of this arrangement, Kelso’s CalPERS pension will be sharply “spiked” because his salary as the federal Receiver greatly exceeds his earlier salary as a state employee, and will be counted as his highest year of compensation, such that he will become, upon retirement, one of the highest paid recipients of CalPERS pensions.  The petition and complaint further alleges that Kelso will be qualified for lifetime defined pension and health benefits through CalPERS at public expense.  It reasonably may be inferred that this will create a significant added financial burden on the CalPERS pension system.

Judge Kenny did not decide whether any of these allegations are true.  Rather, he ruled on whether the petitioner, another CalPERS member, had standing to pursue the case.  Judge Kenny found that the petitioner has standing. The California Constitution, in contrast to the U.S. Constitution, does not include a “cases and controversies” limitation on judicial power.  As a result, California permits both taxpayer and citizens suits.

Judge Kenny addressed whether the petitioner had taxpayer standing under Section 526a of the Code of Civil Procedure.  That statute permits a taxpayer to bring an action to restrain or prevent an illegal expenditure of public money.  No showing of special damage to a particular taxpayer is required as a requisite for bringing a taxpayer suit.  Connerly v. State Personnel Board, 92 Cal. App. 4th 16, 17 (2001).

In ruling on the demurrers, Judge Kenny noted that Section 526a “is properly invoked where some illegal expenditure or injury to the public fisc is occurring or will occur, or to control illegal governmental activity.” citing Humane Society of the United States v. State Board of Equalization  152 Cal. App. 4th 349, 361 (2007).  He also took special note of the fact that the issues raised by the petition would escape judicial review if standing were not afforded.  Finally, he took note of the importance of these issues to the public:

In these times of fiscal crisis, the public duty of pension administrators to act in compliance with the law is sharp, and the public need to provide a means of review and accountability when they allegedly fail to do so is weighty.

Former Governor Gray Davis appointed Judge Kenny to the bench in 1999.  Judge Kenny had previously served as the Executive Officer of the California Air Resources Board, an enforcement attorney with the Fair Political Practices Commission, and as a Deputy District Attorney (San Joaquin County).